On the Empirical Association between Trade Network Complexity and Global Gross Domestic Product

TL;DR

This study investigates the relationship between trade network complexity and global GDP, revealing significant correlations across sectors and with economic cycles, suggesting network science as a valuable tool for macroeconomic analysis.

Contribution

It introduces a sector-level analysis of trade networks using network metrics and demonstrates their association with global GDP and economic fluctuations.

Findings

Trade network complexity correlates with global GDP across sectors.

Network metrics relate to economic cycles like the Great Recession.

Trade volume alone does not fully explain GDP growth.

Abstract

In recent decades, trade between nations has constituted an important component of global Gross Domestic Product (GDP), with official estimates showing that it likely accounted for a quarter of total global production. While evidence of association already exists in macro-economic data between trade volume and GDP growth, there is considerably less work on whether, at the level of individual granular sectors (such as vehicles or minerals), associations exist between the complexity of trading networks and global GDP. In this paper, we explore this question by using publicly available data from the Atlas of Economic Complexity project to rigorously construct global trade networks between nations across multiple sectors, and studying the correlation between network-theoretic measures computed on these networks (such as average clustering coefficient and density) and global GDP. We find that there is indeed significant association between trade networks' complexity and global GDP across almost every sector, and that network metrics also correlate with business cycle phenomena such as the Great Recession of 2007-2008. Our results show that trade volume alone cannot explain global GDP growth, and that network science may prove to be a valuable empirical avenue for studying complexity in macro-economic phenomena such as trade.